by AUFA MARDHIAH / Pic by HUSSEIN SHAHARUDDIN

TUN Dr Mahathir Mohamad (picture) tweeted that pegging the ringgit in 1998 helped with Malaysia’s economic recovery and was proved the right move later by the International Monetary Fund and the World Bank.

As the ringgit-dollar pair edged to a two-year low of RM4.402 yesterday, the former prime minister added the financial situation of the country then was worse than now.

“Our reserves then were not as big as now. Still, we overcame the financial and economic problems caused by the depreciation of the ringgit through pegging it at RM3.80 per US dollar,” he said in his official Twitter thread today.

He added pegging the local unit will not cause the outflow of foreign investments in Malaysia as any exodus usually was due to the expectation of further depreciation of the ringgit or shares.

“When the ringgit was pegged, there would not be further depreciation against the US dollar. Assured of the value of their investments, the need to divest was removed,” Dr Mahathir added.

He noted depreciation of the local currency would lower the cost of production if there is no pay revision upwards.

On the other hand, the cost of imported raw materials and components would increase and negate the gain from lower wages.

“Logistical cost would also increase, again reducing the gain from production cost. A depreciated ringgit does not necessarily reduce cost of production.

“Assuming that the ringgit remains pegged at RM3.80 per US dollar, the cost in ringgit would not change. Budget estimates would be sustainable.

“Wherever an importer wishes to buy something in the US dollar, Bank Negara Malaysia (BNM) should have enough US dollar to sell at the pegged rate, that is, at RM3.80 per US dollar,” he said.

He added that BNM now has more reserves in US dollar that are deposited with the central bank, in exchange for ringgit. 

“There should be no shortage of US dollar when needed. There were problems of course. But we were able to set up subcommittees to deal with them in 1998. This included the recapitalisation of banks and businesses,” he stated.

He also questioned how Malaysia could go bankrupt if the currency is pegged, with BNM having more savings and reserves now compared to 1997-1998.